The chief watchdog of the government’s $700 billion bank-bailout plan says top executives of struggling financial institutions must be fired if the economy is to have any chance of recovery.

Elizabeth Warren, a Harvard law professor and chair of the congressional oversight committee monitoring the government’s Troubled Asset Relief Program, told The Post that letting banking leaders off the hook for the mess their companies are in will plunge the country into a deeper hole.

“The management of the institutions receiving subsidies from the government must be replaced,” she said in an interview last week.

Warren picked out the head of Citigroup for special mention, but will recommend all bailout recipients — which include Goldman Sachs and Bank of America — get the same clean-out at the top.

She said failure to do so in past financial crises — particularly in Japan in the 1990s when that country’s government handed out cash but left banking leaders in their jobs — slowed recovery drastically.

“It is crucial for these things to happen,” she said.

“Japan tried to avoid them and just offered subsidy with little or no consequences for management or equity investors, and this is why Japan suffered a lost decade.”

Together with the firings, Warren said other essentials needed to ensure the banks’ survival include accurate valuation of the troubled assets currently being held, and wiping out current shareholders — a move that would create turmoil in stock markets around the world.

Her conclusions — expected to be published in a report due out this week — were drawn from a detailed study of historic banking crises in Sweden and Japan, the US savings-and-loan crisis of the 1980s, and the Great Depression.

She declined to give more detail, but told The Post she will refer specifically to troubled insurance group AIG, which has received $173 billion in government bailout money, and the crippled banking giant Citigroup, which was given $45 billion in funds and more than $316 billion in loan guarantees.

She didn’t mention the company’s heads by name. AIG’s chief executive Edward Liddy was hired in September last year to steer the insurance giant out of the mess and would be unlikely to be replaced — though other top managers at the firm could be.

But Citigroup’s head, Vikram Pandit, though relatively new to the job, is considered very much a part of the old guard at the bank.

Warren didn’t name Goldman Sachs and Bank of America, but they received $10 billion and $45 billion in bailout cash respectively.

Treasury Secretary Timothy Geithner last week said he would be willing to fire bank CEOs who took the cash.

A spokesman for Geithner said yesterday he could not comment on what might be in Warren’s report.

But he said, “We recognize that confidence in the strength of our financial institutions must be restored to ensure our continued ability to support economic recovery.”

The TARP watchdog also believes there are fundamental problems with the approach Geithner has undertaken to save the banking system. Geithner, Warren claims, has offered “open-ended subsidies” to some of the world’s biggest financial institutions without adequately weighing the potential pitfalls.

“We want to ensure that the Treasury gives the public an alternative approach to what is happening today, an approach with which we have deep concerns.”